Dairy prices fall sharply at auction

International dairy prices fell sharply at the
GlobalDairyTrade auction overnight, with the GDT Price Index
dropping by 8.9 per cent to its lowest level since December
2012 and prompting a half-a-US-cent fall in the New Zealand
dollar.

The price of whole milk powder - the most important product
line for New Zealand producers - fell by 10.9 per cent to an
average US3088 a tonne at the auction.

In the foreign exchange market, the The New Zealand dollar
dropped from around US88.08c just before the release of the
results to US87.55c just after. The currency later recovered
some ground to trade at US87.60c.

"Its obviously directly related to the dairy auction," ANZ
Bank senior foreign exchange strategist Sam Tuck said. "It is
a significant move compared with what we have had lately, and
it is a reasonable break down from that trading pattern of
sitting happily above US88c," he said.

The auction result adds more weight to predictions that
Fonterra may have to cut its 2014/15 farmgate milk price
forecast, which currently sits at $7.00 a kg of milk solids.
ANZ's forecast is for a farmgate milk price of around $6.25 a
kg.

At the GDT auction, skim milk powder prices fell by 7.1 per
cent to an average US$3516 a tonne and anhydrous milk fat
dropped by 10.0 per cent to US$3250. Rennet casein prices
fell by 8.9 per cent to US$9761.

The GDT price index dropped 8.9 per cent to US$,309 a tonne
from US$3595 a tonne two weeks ago. Some 36,656 tonnes of
product was sold, down from 41,513 tonnes two weeks ago.

Butter milk powder prices declined by 4.6 per cent to US$4426
a tonne and cheddar slipped by 1.6 per cent to US$4164 a
tonne.

New refined processes coming out of the States for the
production of artificial milk are being in the main rubbished
here currently, a conclusion reached after listening to a
radio interview with a prominent dairy spokesman. The fellow
being interviewed may well be right in the short term.
However, countries such as China could back and implement
such refined technology in order to feed their increasing
population and reduce import costs. A resulting drop in
demand for NZ dairy exports due to any up take in such
technology would have over time dramatic affect on the NZ
dairy industry returns.

Should policymakers listen to those whom now say this can't
happen? Should NZ research, invest in and develop a number
industries to offset future demand changes to primary
industry such as dairy? Some evidence would seem to support a
view that the current government may not have the best
interests of our environment at heart with the latest water
standards it has set. The resulting degraded outcomes for
waterways over coming years if policy is let unchanged may
see a battered dairy industry paying for the clean up?

Present day dairy prices at NZ stores will more than likely
rise, to help make up for the income lost from the lower
export returns. Such a response would not be unexpected from
our current buisness and political systems.